If there were any lingering hopes on Wall Street for a revival in IT spending this year, they were probably dashed during

EMC's

(EMC)

second-quarter earnings conference call.

"The hard cold fact is that I do not see the IT spending environment improving in 2002. Customers are extremely tight with their dollars right now," CEO Joe Tucci said shortly after the company reported earnings that beat analysts' estimates by a penny.

"The good news is I don't see things getting worse," he added. "We are bumping along the bottom." Still, some analysts say that it may take until 2004 for a meaningful pickup in IT spending to happen.

For the second quarter, the company said it earned about $1 million, compared with a year-ago profit of $109 million. Excluding the after-tax reversal of a $28 million 2001 restructuring charge, EMC reported a loss of $11 million, or 1 cent a share. On that basis, analysts polled by Thomson Financial/First Call had been looking for a loss of 2 cents.

Revenue for the quarter was $1.39 billion, up 7% sequentially but down from $2.02 billion in the second quarter of 2001. Analysts had been expecting about $1.375 million. Software revenue was up 14% sequentially.

EMC said it expects to be profitable for the year but that sales and earnings will be flat in the third quarter. "Based on what we know now, we are comfortable with the consensus of a penny loss in the third quarter and a couple cents of earnings in the fourth quarter," said Chief Financial Officer Bill Teuber.

"Economic conditions and customer spending patterns in the second quarter were very similar to the first. Most large companies continue to delay major IT projects, generally limiting their purchases to deployments that provide a rapid return on their investment," EMC said in a statement.

According to Harry Blount, an analyst at Lehman Brothers, profitability isn't enough to move the stock. In recent trading, EMC was off its lows of the session but still down 2.4% at $8.41.

"The only way to get earnings to support a higher stock price would be for a significant acceleration in revenue or for more aggressive operating expense reduction," Blount said. "But right now, I do not see any catalysts on the top line or for operating expenses."

EMC does not expect to reduce its head count, something Blount thinks it needs to do.

Again this quarter, EMC emphasized its shift to software and away from hardware, with hardware making up 50% of revenue and software 23%.

"The messages were positive from the company," said Clay Sumner, an analyst at Legg Mason, who thinks that EMC is focusing more on software and services than people realize. "In addition, growth in midrange hardware lines indicate they took some market share from

Compaq

(CPQ)

."